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Thursday, January 10, 2008

NEW YORK (AP) - Troubled bond insurer MBIA Inc. was working Thursday to place $1 billion in new debt, an offering critical for maintaining its "AAA" financial strength rating and keeping its business viable.

Exactly what kind of interest rate MBIA will have to pay on the $1 billion in new debt is up for debate, but analysts agree it is likely the bond insurer will be able to come up with the fresh capital regardless of price.

"If it is 12 percent or 15 percent, who cares?" Geoffrey Dunn, managing director of equity research at Keefe, Bruyette & Woods Inc. said in an interview. The difference between the interest rates would lower 2008 earnings by 10 cents, Dunn said, adding that in today's market it is very expensive to complete a deal.

John Flahive, director of fixed income for BNY Mellon Wealth Management, echoed those sentiments. Flahive said he believes that an MBIA deal will be placed, but that it will require a yield "that would have been eye-popping a year ago."

Flahive thinks the deal is unlikely to come to market on Thursday, but should be placed Friday.

"From what I hear the 'the book is building' for the deal," he said.

On Wednesday, MBIA said it would issue $1 billion in new debt to improve its capital strength and cover any potential claims. The company writes insurance policies that promise to reimburse bondholders when borrowers default.

MBIA is working to place the debt privately, "so sophisticated money is looking at the deal," Dunn said, adding if the debt is rated highly and carrying a 12 percent or 15 percent interest rate, it will draw bidders. Ratings agencies have already said they will put a "AA" rating on the notes.

Falling short of raising the $1 billion could leave MBIA scrambling. The company would likely take out reinsurance to cover any shortfalls from the debt, Keefe Bruyette's Dunn said.

If MBIA is unable to raise the $1 billion, the Armonk, N.Y.-based company will likely be downgraded to "AA," which would at very least severely limit future business, if not send the company into bankruptcy.

Gary Ransom, an analyst with Fox-Pitt, Kelton, said the worst-case scenario for MBIA is a downgrade after not raising new money. But, Ransom said he does not believe the worst-case scenario is likely, and the company should be able to place the debt.

Others are pessimistic as well about the possible failure of MBIA to raise new capital. Friedman, Billings, Ramsey & Co. analyst Steve Stelmach wrote in a research note that if MBIA does not raise enough money and is put into runoff, "we would ascribe little to no value to the business."